MoneyTalks is Stockhead’s regular drill down into what stocks investors are looking at right now. We’ll tap our extensive list of experts to hear what’s hot, their top picks, and what they’re looking out for.

Today we hear from Duro Capital (Australia) partner and portfolio manager Chadd Knights. 

 

What’s hot right now?

Irrespective of the macroeconomic environment, Knights says the view at Duro Capital has always been that their biggest edge comes less from informational or analytical advantages, and more from having a behavioural edge.

“This results in having a longer investment time horizon than others,” he explains.

“The sell-off in the market has resulted in valuations in some stocks we’ve been watching for years reach bargain levels.

“With our long-term investment horizon, we’re of the view that prospective returns from here are very exciting in select positions.”

 

KELLY+PARTNERS (ASX:KPG)

With inflation all the talk, a defensive business with pricing power, a strong balance sheet, and significant cash flows positions KPG well in this environment.

KPG is a chartered accounting network specialising in business accounting and tax services for private business owners.

“Established in 2006, they have grown to 30 operating businesses with ~$62m of revenue estimated for FY22,” Knights said.

“KPG has grown their revenues at a Compounded Annual Growth Rate (CAGR) of ~30% since inception which is ~10x that of the industry.

“They are defensive, grew during the GFC, and have consistently raised prices.”

The total addressable market is $12.5bn catering to SMEs, private businesses and so on but with an FY22 revenue target of $62m, this represents a market share of <1%, providing a significant runway for growth in a tired industry that lacks entrepreneurs.

“The business has generated an average ROIC of 26% for the past five years to 2021 and generates significant cash flow,” he added.

“With a small market share, there is ample opportunity to redeploy that cash and earn high incremental returns on capital.

“The firm is led by its founder and largest shareholder (51% ownership), Brett Kelly.

“We regard Brett as one of the best capital allocators in the country having established a long track record of excellence.

“They have stated an FY24 revenue target of $80m and an EBITDA target of $28m.”

Based on current acquisitions year to date and their trajectory, Knights believes believe that KPG will beat this guidance and that an upgrade is likely.

 

CAMPLIFY (ASX:CHL)

CHL is Australia’s largest and fastest growing peer-to-peer camper van, caravan and motorhome sharing community connecting RV owners to hirers.

“Think of them as the Airbnb for RVs,” he said.

“They have a dominant position in Australia and NZ, with fast growing operations in the UK and Spain.”

Over the past 30 years, the amount that Australians have spent on family holidays as a portion of household income has stayed reasonably constant.

“Despite recent inflationary pressures, forward bookings for CHL beyond May 2022 are up 96% YoY, and statistics from the US and UK also show strong RV holidaying trends,” Knights said.

“At the end of the day, an RV holiday is a relatively cheap form of holiday with the average booking value on the platform of $1,200.

“Founded in 2014 and run by its founder and large shareholder, Justin Hales, CHL have grown the cumulative number of RVs and hirers on the platform to over 10k and 199k, respectively.

“Over the past three years, revenues have grown at a CAGR of 117% to 1H22, GP margins have remained strong and stable, and customer acquisition costs are favourable.”

While macroeconomic conditions may impact CHL in the short-term (but hasn’t as yet), Knights said it has hurt the sentiment towards the stock, providing a unique opportunity to acquire what he thinks is a high-quality business at a bargain price.

“We remain extremely excited about the future of this business,” he said.

 

 

The views, information, or opinions expressed in the interviews in this article are solely those of the interviewees and do not represent the views of Stockhead. Stockhead does not provide, endorse or otherwise assume responsibility for any financial product advice contained in this article.

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